Select Committee on European Scrutiny Thirty-Seventh Report

45 EU Regulatory Framework for Electronic Communications



COM(06) 334 + ADDS 1-3

Commission Communication: Review of the EU Regulatory Framework for Electronic Communications Networks and Services

Commission Staff Working Documents: Annexes accompanying the Communication — Proposed Changes, Impact Assessment and Draft Recommendation on Relevant Product and Services Markets susceptible to ex ante regulation

Legal base
Document originated29 June 2006
Deposited in Parliament6 July 2006
DepartmentTrade and Industry
Basis of considerationEM of 23 August 2006
Previous Committee ReportNone; but see HC 34-xxi (2005-06), para 9 (8 March 2006) and HC 34-xxiii (2005-06), para 7 (29 March 2006)
To be discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared, but further information requested; relevant to any debate on electronic communications services and networks


45.1 The main aim of the new legislative package for electronic communications introduced in July 2003 was a lighter, but comprehensive and technology-neutral, framework, based on competition law principles. It also aimed to streamline the entire regulatory process by limiting ex ante regulation[112] to what is strictly necessary and by rendering the regulatory process as transparent as possible. It adapted the existing rules to take account of the convergence between telecommunications, information technology and media in evolving markets, where the same services can be delivered over a variety of platforms and received via a range of different terminals. Consultation and co-operation are key features, in the light of the increased flexibility given to National Regulatory Authorities (NRAs) to choose the most appropriate tools for dealing with regulatory concerns as they arise.

45.2 The regulatory framework consists of six Directives and a Decision:

  • Framework Directive: general principles, objectives and procedure, focussing particularly on the powers and responsibilities of the NRAs as the foundation of the new regulatory system;
  • Authorisation Directive: replaces individual licences by general authorisations to provide communications services;
  • Access and Interconnection Directive: sets out rules for a multi-carrier marketplace, ensuring access to networks and services, interoperability, and so on;
  • Universal Service Directive: guarantees basic rights for consumers and minimum levels of availability and affordability;
  • e-Privacy or Data Protection Directive: covers protection of privacy and personal data communicated over public networks;
  • Directive on Competition: consolidates previous liberalisation directives; and
  • Radio Spectrum Decision: sets the principles and coordination procedures essential for the development of a coherent EU radio spectrum policy.

45.3 The Framework also establishes a number of committees and policy groups to manage and implement the new system:

  • Communications Committee: which advises on implementation issues;
  • European Regulators Group: to facilitate consistent application of the regime;
  • Radio Spectrum Policy Group: to enable Member States, the Commission and stakeholders to coordinate the use of radio spectrum; and
  • Radio Spectrum Committee: to deal with technical issues around harmonisation of radio frequency allocation across Europe.

The Commission Communication

45.4 The 2006 Review of the Regulatory Framework is a process the Commission is required to undertake under the five directives. It starts with an assessment of the Framework and how it has led to increased growth and competition, with greater choice, innovative products and lower prices for consumers and greater productivity and jobs for the European economy. Overall, in 2005 the ICT sector was valued at €614 billion.

45.5 It then notes that the stakeholder consultation elicited positive feedback on the effect of the Framework, though (given that the market review process was not complete across Member States) some felt it to early to draw definitive conclusions. New entrants, cable operators, ISPs (Internet Service Providers) and software and equipment producers noted that the Framework had allowed the development of competition and innovation, facilitating investment (€45 billion in 2005) and broadband penetration (a major driver of infrastructure development, where countries with strong competition between incumbents and cable operators tended to have the highest penetration). The majority of respondents considered that ex ante regulation hindered new investment and should be phased out by 2015

45.6 Looking at technology and market evolution, the challenge is "to ensure that the framework continues to serve the needs of the sector for the next decade". The main technological trends are expected to be a migration to all "all Internet Protocol (IP)", the growing use of wireless communications and wireless access platforms, deployment of fibre in local access networks and the transition to digital TV: "Far reaching impacts on existing network architectures, services and consumer devices can be expected" — new competitors for market players, new and innovative services for consumers, with current "triple play" services (voice, Internet, TV) being but the precursor of more sophisticated "bundles" revolving around the continued blurring of boundaries between products, services and devices. The Framework has shown itself capable of addressing new technologies such as Voice Over Internet Protocol (VOIP), but the provisions governing the management of radio resources, which are critical to innovation and shared with many other sectors, need to be adapted, "to avoid inappropriate regulation".

45.7 The two main changes proposed are:

—  a more market-based strategy regarding spectrum management; and

—  a reduction of the procedural burden associated with the market review process under Article 7 of the Framework directive.

45.8 The Commission also identifies other changes that seek to

—  consolidate the single market;

—  strengthen consumer and user interests;

—  improve security; and

—  remove outdated provisions.

45.9 The Commission Staff Working Document describes these proposals in more detail; and an evaluation of these changes and other options considered is in the associated Impact Assessment document. They are helpfully summarised and discussed in his 23 August 2006 Explanatory Memorandum by the Minister for Energy (Malcolm Wicks), as follows:

"(i) Spectrum: Here the Commission's 'New Approach to Spectrum Management' is essentially an endorsement of their previous Communications in which they have advocated a market-based approach to spectrum management. The specific proposals include a presumption of technology and service neutrality in terms of allocation of spectrum by national authorities and the mandating of trading in certain spectrum bands identified by the Commission. The latter would be effected through decisions of the Commission that were subject to Member State agreement within the Communications Committee.

"(ii) Streamlining Market Reviews: The Commission is proposing a simplified procedure for the way in which regulatory authorities report on their analysis of markets. The main feature is a simplified procedure for markets, which were found to be competitive in previous reviews, and those where there are only minor changes from the previous review. They are also proposing a Regulation to codify the procedures for market reviews that would include a minimum standard for notifications (i.e., the information that has to be supplied) how re-notifications have to be conducted (after a Commission veto); and other streamlining measures.

"(iii) Consolidating the Internal Market: There is a number of measures suggested here the most significant of which is a Commission veto on the remedies submitted by National Regulatory Authorities (NRAs). Another important proposal includes measures binding the way Member States Courts deal with appeals from operators in relation to decisions from NRAs; where the idea would be to set a criteria to limit the ability of a national court to suspend a regulatory decision. The Commission also propose measures in relation to Article 5 of the Access Directive (where Member States can take measures against service providers that do not have market dominance); improving enforcement mechanisms for NRAs (allowing more rigorous penalties for anti-competitive behaviour); and an obligation on NRAs to review 'must carry' rules (where broadcasters are obliged to carry certain channels).

"(iv) Strengthening Consumer Protection and User Rights: Here the Commission are proposing significant measures to improve the information provided on prices and other conditions to end-users. Among these are powers for NRAs to demand price transparency for services (for example premium rate calls) and an obligation for all operators to provide call location information in relation to emergency calls. A significant dimension to user rights is the current measures enshrined within the Universal Service obligations. Here the Commission note a forthcoming Communication in which the overall scope of universal service will be addressed. However, outside of this they do propose, in the context of this Review, the removal of the obligation on the provision of universal directories or directory enquiry services. Also addressed within this section is the issue of 'Net Neutrality' where the Commission opine that current NRA powers are largely sufficient to deal with deviant behaviour, the access to emergency services by the disabled through the '112' number (tightening up of existing obligations); and the introduction of a new mechanism to deal with e-Accessibility issues.

"(v) Security: In reflection of the importance of information security in relation to the confidence that users have in relation to e-business; and thus the success of the Lisbon Agenda, the Commission are proposing a number of measures. These include new obligations on NRAs to monitor and implement, where necessary, measures to improve the security measures that network operators adopt in relation to their provision of services, this including standards recommended by the Commission. Also the Commission propose that network operators and Internet Service Providers (ISPs) should be obliged to notify their customers of any network security breaches that could result in the loss, inadvertent disclosure or alteration of their personal data. Finally, on the security agenda, the Commission propose enhanced obligation on all network operators with respect to network integrity.

"(vi) Better Regulation: Removing Outdated Provisions: Here the Commission propose a number of 'housekeeping measures' which include the deletion of minimum set of leased lines (old technology); the provision mandating numbering for ETNS (European Telephony Numbering Space) and the Regulation on unbundled access to the local loop (overtaken by competition in the market)."

The Draft Recommendation

45.10 The Commission Staff Working Document, containing a draft Commission Recommendation on relevant product and services markets within the communications sector susceptible to ex ante regulation under the Framework directives, encompasses: an analysis of the competitive situation in the various markets currently within the Recommendation; a study of how convergence is affecting the market situation; a look at emerging markets; and a draft Recommendation with a revised list of markets. The Minister says that a new Recommendation would update that made by the Commission on 11 February 2003 and (if made) would lead to NRAs (OFCOM in UK) to re-analyse the need for ex ante controls in their markets. He continues as follows:

"It is important, in the consideration of this Recommendation, to look at the (so-called) 'three criteria' that determine (under the current Recommendation) whether specific markets should be subject to ex-ante (as opposed to ex-post) regulation. These are:

i)  that the market is subject to high and non-transitory entry barriers;

ii)  that the market has characteristics that it will not tend over time towards effective competition; and

iii)   that competition law by itself is not sufficient to deal with the market failure.

"The draft Recommendation looks at these in detail and their relevance to the current dynamics of the communication markets in the EU. It also looks at how NRAs have the ability to determine additional markets outside those in the Recommendation; provided they fit the 'three criteria' test.

"The most important part of the document concerns the analysis given to the examination of the markets that are currently subject to ex-ante regulation. Here the first category to be examined is 'Services provided at Fixed Locations (4.2.1)'. Here the analysis looks at public telephone services, access to data and related services and leased lines. In the former category the analysis by the Commission looks at the competitive situation with respect to telephony services and concludes that the retail markets for local and international calls for both residential and non-residential customers are largely competitive and thus can be removed from the list.

"The second category (4.2.2) relates to 'Access to Data and related services at a fixed location' which encompasses wholesale markets for unbundled and broadband access. In both cases the analysis concludes that these markets are of significance to the competitive environment and thus should be retained as markets within the Recommendation.

"The next category (4.2.3) is 'Dedicated connections and capacity (leaded lines)' where the analysis concludes that the retail market is essentially competitive and thus should not, in general, be subject to ex-ante regulation. Therefore the only markets recommended for inclusion in the Recommendation are the wholesale terminating and trunk segments of leased lines.

"The next category (4.3) concerns services provided at non-fixed locations (mobile services). Here the analysis considers the relative competitive situation for access and call origination on mobile networks, call termination and the market for international roaming on public mobile networks. Whereas the retail markets are considered to be competitive the analysis suggests there are doubts as to whether the market for access and call origination is truly competitive across the whole of the European Union; the doubt being whether in some markets, despite apparent competition, there is really competitive pricing for services. The conclusion is, therefore, that there should be further consultation before the access and call origination markets are deleted from the Recommendation. There is, however, less doubt on the markets for call termination and international roaming; where the consumer has an insignificant influence on the costs they have to bear.

"The final market considered is that related to Broadcasting Transmission. The picture here is pretty complicated with a whole variety of services being provided across the Member States on a number of different platforms; including DSL, cable, free to air and satellite offerings. Further complication is added in that the majority of National Regulatory Authorities have not undertaken a market analysis with respect to this market. The Communication, therefore, does not make a recommendation but leaves the question, whether this market should remain in the Recommendation, subject to the public consultation."

The Government's view

45.11 The Minister says that the thrust of the Communication and associated documents is consistent with the policies advocated by the UK since the adoption of the EU Framework in 2002, since they endorse the fundamental belief of the Government that effective regulation leads to greater competition in the market, increased investment and innovation and enhanced consumer choice. He therefore endorses "the overall strategy of the Commission in their evolutionary approach of maintaining and, where necessary, improving the Framework in line with the technological and business developments the EU market is facing". However, he says that "there are a whole host of issues to be considered", which he breaks down into the following areas:

(i) Spectrum:

"Here we broadly welcome the proposals the Commission have made. Ofcom have already taken a positive lead in introducing market mechanisms into the management and allocation of spectrum; and it is therefore good to see the Commission endorsing a similar approach for the EU as a whole. It is worth noting that the proposals do not (despite some recent press reports) include the notion of a spectrum 'agency'; though they do advocate a mechanism whereby the Commission would determine the spectrum bands in which trading would have to be introduced within Member States. It will be important to ensure that the detail of the latter does not hamper the current Ofcom trading proposals.

(ii) Market Reviews

"The Market Review process is, in many ways, the cornerstone of the whole Electronic Communications Framework. It determines the methodology under which the various communication markets are reviewed (and thus regulated) by the National Regulatory Authorities (NRAs) and the way in which the Commission oversee, and to an extent, control the process. The Commission, in the light of experience, are suggesting a number of steps to improve and streamline the process, which, in general we approve of. In particular we believe it is sensible for there to be a 'fast track' process for notifications where the market situation had not materially altered and for notification to include a pre-determined set of content. We need, though, to be convinced of the need for the proposed Commission Regulation (effectively codifying the Article 7 process in a separate instrument).

(iii) Internal Market

"Here the proposals being made by the Commission seem, in the main to be sensible and proportionate; it is clearly important to take steps to improve the ability of companies (such as BT in our case) to carry on business in other Member States with as few barriers as possible. We also support the Commission's view that measures need to be looked at to limit the detrimental affect of the Appeals systems in Member States. It is clear that in some jurisdictions (not the UK) the incumbent routinely appeals to national courts as a way of delaying NRA decisions and thus putting competitors out of business. We do, though, have concerns on the Commission proposal to take powers to 'veto' the remedies that NRAs determine are necessary to impose upon operators with significant market power. We think that given the considerable differences in the 25 markets across the EU (especially in terms of infrastructure development), NRAs need freedom to continue to set their own remedies.

(iv) Consumer Protection

"We agree with the Commission that enhanced consumer protection should be a key objective in the Review of the Framework; especially in light of the rapidly changing business models that are already providing consumers with a baffling array of choices. We thus welcome increased powers for NRAs to determine price transparency (especially in relation to premium rate services) and to insist upon caller location information, where technically feasible, in relation to calls to emergency services. On Universal Service we agree with the Commission that a fundamental review is required in light of convergence, though are a bit disappointed that they have failed to make a decision in this Review process. The two minor changes proposed, removing directories (of phone numbers) and directory enquiry services from the scope of universal service, seem sensible, these already being competitive services in the UK. We also agree with the Commission that more can be done to strengthen the rights of disabled (something the UK have been championing in other fora) and thus welcome the idea of a new regulatory mechanism; though are disappointed on the lack of ideas from the Commission about how this might be achieved. Finally on the issue of 'Net-Neutrality' we agree with the assessment made that in general competitive and open markets should prevent abuse by service providers in terms of either degrading the quality or blocking third party services (which explain to an extent why this issue has been seen as more significant in the US). We do think, however, that the Review could usefully address the issue and identify the particular powers the NRAs already have to punish discriminatory behaviour by operators.

(v) Security

"Information security, as the Commission have noted, is an important ingredient of the information society and thus the Lisbon Agenda. A lack of confidence by business and consumers in e-business and communication technologies — because of the risk they pose to the security of business or personal data — could have a detrimental affect on the whole of society. In recognition of this the Commission focus is to be welcomed; as is their proposal to give NRAs increased powers to require information from service providers and, where appropriate, instruct them to take specific actions. What is not so welcome, however, are the proposed Commission powers to impose particular standards on operators (we believe this should be an issue for NRAs to determine) or to mandate them to report all breaches of security or loss of service. We are consulting the Information Commissioner on a further proposal that all service providers (including ISPs) should be required to notify their customers of any breach of security relating to their personal data."

45.12 On the Recommendation on Relevant Markets, the Minister says:

"Although just a Recommendation, this paper is important in the context of the whole regulatory framework. That is because it specifies the markets that, in general, are analysed by the NRAs and thus are susceptible to ex-ante regulation if a provider is found to have significant market power. NRAs, as explained above, can determine additional markets (as Ofcom have done) or even decide not to analyse markets on the list (with good reasons) but in general neither strategy has been adopted. The Commission, in their comprehensive and detailed paper, have rightly addressed the dynamics of the various markets and have, in the spirit of better regulation, identified some markets, mainly in the retail area, that, they believe, to be in general competitive and thus candidates for removal from the list. Other markets they have considered might be removed from the list include those relating to leased lines (on the retail front), mobile access and call origination on public networks and broadcasting transmission services where content is delivered to end users.

"In an ideal world we would whole-heartedly support moves to decrease the level of regulation across markets and thus lessen the burden on the NRAs and the businesses they regulate. Indeed, we would have no concerns about the markets being removed from mandatory scrutiny in the UK. There is, however, an issue across the twenty-five markets of the European Union in terms of their inherent competition and the way they are regulated by individual national regulators. We have, through the Article 7 process, seen several examples where NRAs have not always made independent decisions and where there has not been sufficient access rights given to competitors in some markets. This, together with the fact that around a quarter of the market reviews across the EU are still to be completed, leads us to doubt whether the time is right for markets to be removed from the list. A further factor is the trend towards operators providing bundles of products to consumers (so called 'triple' play service) where there has been evidence of the incumbent taking advantage of squeezing competitors out of markets. The Commission noted that where such practices are abused Competition Law could be applied; though there is little evidence that this has been useful in addressing abusive behaviour by incumbents; at least not in a time-frame that is useful for consumers. We will, therefore, be looking to ask some searching questions when we respond to the Commission proposals. We may suggest that given the timing of updating the Recommendation is in the hands of the Commission, they might perhaps further reflect on market developments before adopting changes at the end of the year. We are also considering recommending that the Commission review the Recommendation more frequently than currently proposed, e.g. every two years, to ensure it keeps pace with market developments."

45.13 With regard to the Impact Assessment , the Minister says that the DTI will conduct its own impact assessment when the subsequent legislative proposals, stemming from the Communication, are proposed at the end of the year. In the meantime, he expects that this extensive range of papers will be discussed in Council working groups during the Autumn and might be subject to Ministerial consideration at the December Telecoms Council.


45.14 On 29 March we considered Commission Communication 6700/06, on "European Electronic Communications and Markets 2005", which was the eleventh report on the overall market and the second on the new regulatory framework. As we noted, it contained much good news for UK consumers of a growing range of telecoms services, and again demonstrated the importance of a commitment by public opinion and government to market-based solutions, flexible regulation and a strong, determined and independent National Regulatory Authority. The exception to those glad tidings was mobile roaming charges, where the Minister said that the Commission was considering a Regulation on "this complex issue". We consider that draft Regulation elsewhere in this Report.

45.15 So far as this first, very comprehensive, Review of the new regulatory framework is concerned, the fast-moving nature of the context is evident to all users of electronic services. As the Commission itself says, the challenge is "to ensure that the framework continues to serve the needs of the sector for the next decade" and avoid "inappropriate regulation". It is accordingly encouraging that the Commission is taking what the Minister describes as an evolutionary approach, of maintaining and, where necessary, improving the Framework in line with technological and business developments. We are also inclined to endorse the Minister's other comments, especially with regard to the Market Review issue since, as we observed when considering the earlier Communication referred to above, there is plainly a need for the Commission to focus on those Member State governments and NRAs who are dragging their feet.

45.16 It is right, therefore, for the Minister to be proposing to "ask some searching questions" in response to the Commission proposals. We should be grateful if, at an appropriate time, he would let us know what they are and what the response is.

45.17 In the meantime, we now clear the document, which we consider relevant to any debate on electronic communications services and networks.

112   Under ex ante regulation, prior control is exercised, with the action in question being reviewed and approved before it is taken, rather than being examined subsequently. Back

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